Hearing on AMR bankruptcy plan’s disclosure statement today

American Airlines Inc. and parent AMR Corp. face a crucial hearing Tuesday that needs to go smoothly if they hope to exit bankruptcy court by summer’s end.

AMR, American and their various subsidiaries will ask U.S. Bankruptcy Judge Sean Lane to approve the “disclosure statement” for their proposed plan of reorganization. If so, stakeholders can soon begin voting on the plan.

The stakeholders, primarily unsecured creditors, will rely on the disclosure statement as they decide whether to approve the bankruptcy plan. AMR and American have the exclusive right to solicit acceptances until July 29.

Assuming interested parties approve the plan, the vote will set the stage for the companies’ exit from bankruptcy and trigger their merger with US Airways Group Inc.

Late Friday, AMR and American filed revised plans and disclosure statements, mostly to clean up and clarify language from the original documents filed in April.

They also countered objections from U.S. Trustee Hope Davis, who is fighting a $19.875 million severance award to AMR and American chairman, president and chief executive Tom Horton.

While Davis had said the plan as proposed is “patently unconfirmable,” the companies said the plan and disclosure statement are just fine.

“It is astonishing that in view of the unprecedented value to be distributed under the plan, the U.S. trustee seeks to sacrifice the interests of over 400,000 creditors and public stockholders of the debtors by attempting to stop the disclosure statement and plan process in its tracks in furtherance of its parochial and one-dimensional crusade against professional and executive compensation,” they argued.

The revised disclosure statement expanded the justification for paying Horton the severance — half in cash and half in stock in the post-merger company, American Airlines Group Inc.

The added language said that the AMR board approved the severance without Horton’s participation, and was based on professional advice and negotiations with creditors, the board and US Airways.

“The AMR board of directors believed that Mr. Horton’s involvement in this process was critical to a successful integration effort and to the ability to realize the synergies and substantial value to be achieved from the merger for the benefit of holders of claims and AMR equity interests,” the revised statement said.

Lane rejected the Horton severance when he OK’d the merger agreement between AMR and US Airways, but did so without prejudice. That left the door open to considering it as part of the plan of reorganization.

In its revised statement, American also said it will keep fighting post-bankruptcy to end its obligation to provide retiree health benefits.

The last hearing on American’s request was held more than four months ago, and both the airline and the Official Committee of Retirees have been waiting since then for Lane to rule.

If the issue hasn’t been resolved by the time they exit bankruptcy, American and AMR said the new company will continue the court battle.

American has said that it currently is paying more than $100 million a year to help pay for retiree insurance.

On a related matter, American Airlines and Citibank filed a proposal Monday in which American would “assume on a final and irrevocable basis” its agreements with Citibank, its credit card partner.

Citibank on May 24 raised objections to American’s plan of reorganization and the disclosure statement.

Citibank, American’s AAdvantage credit card partner for a quarter century, said the plan didn’t account for the potential impact on the bankruptcy case if American left Citibank for another credit card provider.

In a filing Monday, American and Citibank said they’ve settled the dispute.

“For the avoidance of doubt, the debtors [American, AMR] irrevocably and as of the date hereof waive any right to seek to reject the Citibank agreements unless the plan is withdrawn or the court refuses to enter the confirmation order,” the settlement states.

For its part, Citibank promised that it “will not object to confirmation of the plan (or any plan of reorganization substantially similar thereto) unless the plan or such other plan of reorganization differs from the plan in any manner adverse to Citibank.”

In 2009, when American was seeking to boost its liquidity, Citibank agreed to advance American $1 billion by pre-purchasing miles in the AAdvantage frequent-flier program.

Most of that advance was considered a loan, secured by gates, routes and operating slots owned by American.

To post a comment, log into your chosen social network and then add your comment below. Your comments are subject to our Terms of Service and the privacy policy and terms of service of your social network. If you do not want to comment with a social network, please consider writing a letter to the editor.